According to the 2006 Oxford Analytica (OA) Monetary Transparency report, Mexico has been accorded an overall rating of "compliance in progress," unchanged from the previous year. OA finds that improvements in transparency and communications are ongoing. The Bank of Mexico (BdM) retains its traditional monetary policy tool, the corto, although for the past years it has been relying on the overnight interbank interest rate to implement monetary policy. The OA report notes that the BdM uses its website to disclose detailed monetary-policy related information, along with a presentation of the policy instruments in use and the targets that have been set. Mexico is guided by both the Special Data Dissemination Standard (SDDS) of the International Monetary Fund (IMF) and the provisions of its own Federal Law on Transparency and Access to Public Information. It offers public access to advance release calendars. Immediately following the BdM's board of governors meeting, the bank announces monetary policy decisions via press releases and its website. It provides explanations for that policy in the same release or online publication. It has been suggested that transparency might be further increased by the publication of minutes of monetary policy meetings. OA notes an increasing tendency toward detailed information on inflation forecasts, although the BdM does not yet provide such forecasts for multiple horizons.

General Overview

According to the 2006 Oxford Analytica (OA) Monetary Transparency report, Mexico has been accorded an overall rating of "compliance in progress" (p. 224), unchanged from the previous year. OA finds that improvements in transparency and communications are ongoing. The report notes that the Central Bank of Mexico (Banco de México, or BdM) uses its website to disclose detailed monetary-policy related information, along with a presentation of the policy instruments in use and the targets that have been set. Mexico is guided by both the Special Data Dissemination Standard (SDDS) of the International Monetary Fund (IMF) and the provisions of its own Federal Transparency and Access to Public Information Law. It offers public access to an advance release calendar. Immediately following the BdM's board of governors meeting, the bank announces monetary policy decisions via press releases and its website. It provides explanations for that policy in the same release or online publication, although Fitch Ratings, in a 2004 report, suggested that the publication of meetings' minutes would also be welcome. OA notes an increasing tendency toward detailed information on inflation forecasts, although the BdM does not yet provide such forecasts for multiple horizons. OA also applauds the efforts of the BdM to "improve financial market transparency and release additional information on the use of payment systems, such as commissions on ATM [Automated Teller Machine] withdrawals or commissions and rates for mortgage policy" (p. 224).

In 2004, Fitch Ratings published a report on Monetary and Fiscal Transparency in Mexico. The report is no longer available online, but its conclusions are summarized in an article by Business Wire. Overall, Fitch found Mexico's monetary and exchange-rate framework to be transparent, based on direct inflation targeting since 2001. Fitch found "price stability" to be implicit in the operations of the BdM. Fitch also praised the timeliness and accessibility of publications providing comprehensive monetary and financial data. In addition, Fitch noted that the BdM fully adheres to the IMF's data template on international reserves and foreign currency liquidity. According to formal statements of the BdM, cited by OA, the central bank is intending to retain the corto as a policy option. It used to be the main tool to implement monetary policy and is defined as the amount of money that the BdM provides daily to the financial system at twice the equilibrium interbank interest rate. However, the rate has not been changed since 2005, and the central bank is currently relying on its recommendations about floors on the overnight lending rate in order to implement its monetary policy.

According to the 2007 IMF Article IV Consultation, the BdM has had success in coping with inflation shocks, although inflation remains somewhat above its optimal (3%) inflation target. The report suggests that there would continue to be upward pressure on prices, in part due to recent tax reforms, but ultimately concluded "that the current policy stance... was appropriate for the time being" (p. 20). The IMF applauds the BdM's efforts to improve communication with the public. The BdM's publication in May 2007 of a conditional forecast regarding the specific time horizon in which its inflation target would be achieved was cited as a positive step, as were expansions in the material covered in the monthly monetary policy press releases. In particular, the IMF cited the announcement of a "projected inflation path" in October 2007 as potentially useful in assisting the markets to adjust to current and future shocks. It added, however, that it would be useful to make the BdM inflation model public. The IMF also observed that "Mexico operates an independently floating exchange rate system, and the [IMF] team welcomed the continued observance of the transparent auction rule in place since early 2003" (p. 20).

The Principles

Clarity of roles, responsibilities and objectives of central banks.

CP

According to the 2006 OA report, Mexico has been accorded a rating of "compliance in progress" for this principle. Article 28 of the 1917 Constitution and the 1993 Law on the Bank of Mexico set forth the legal and institutional framework for Mexico's monetary policy, along with the formal objectives to be pursued. The Constitution confers upon the BdM both operational and administrative autonomy of Mexico's central bank, and establishes currency stability as the BdM's primary mandate. The Law on the Bank of Mexico stipulates that the basic responsibilities of the central bank are threefold: provide domestic currency, maintain currency stability, and promote soundness in the financial and payment systems of the country. This is to be done, in part, through maintaining an appropriate level of international assets, according to Article 18 of the Law on the Bank of Mexico. The 2006 OA report finds that there are clear statements of the BdM's responsibilities and objectives available to the public on the BdM website. Policy objectives are explained in two publications: the Monetary Policy Program and the biannual Monetary Policy Implementation Report, as well as in the bank's Annual Report. According to OA, this latter "elaborates on the main objectives and results of monetary policy in comprehensive, quantitative terms" (p. 225). The public can also use the BdM website to access the text of reports submitted by the central bank to the legislature, along with a number of additional periodicals that deal with monetary policy and other issues pertaining to the BdM's general mandate.

The legal framework guaranteeing the BdM's operational autonomy is Article 28 of the Constitution and Article 1 of the Law on the Bank of Mexico. According to OA's reading of the law, "there are no conditions under which the government can override central bank decisions" (p. 225). The BdM does not employ exchange-rate targeting, and OA notes that, in practice, there is little worry that the government pressures the BdM regarding its policy regarding the foreign exchange rate. However, OA does note that the Law on the Bank of Mexico does suggest that the BdM follow the guidelines of the Exchange Commission, which is responsible for foreign exchange policy. By law, the chair of the Commission has the final vote on policy decisions. OA notes that the commission includes the secretary and two undersecretaries of the Secretariat of Finance and Public Credit (SHCP), and is usually chaired by the Secretary of Finance. Although this might tip the balance of power over foreign exchange policy to the advantage of the government, OA notes that there has been negligible evidence that such power has been exercised. Articles 37 through 44 of the Law on the Bank of Mexico set out the procedures by which the BdM's board of governors may be appointed or dismissed, as well as its terms of office and its criteria for selection or dismissal. The governor's appointment is legally set to begin four years into the president's term, to avoid the potential for political interference, and the deputy governors do not serve for coterminous periods.

The OA report notes that "since the connection between monetary and fiscal institutions has historically been much closer in Mexico than in other Latin American countries, the regulation of this relationship is clearly set out in various laws and statutes" (p. 226). The BdM and the SHCP work effectively together, which OA asserts has helped make the implementation of monetary policy more efficient. Although the BdM and the SHCP coordinate in some areas of activity, the BdM's monetary policy autonomy is strongly emphasized in law. Nonetheless, OA notes that some aspects of this coordination has given rise to friction, as when they work together on setting the prices of government-administered goods and services. The two institutions also work together with regard to the prepayment of external debt.

Legislation also regulates the BdM's role as lender to the government, which is carried out through the Treasury's account at the central bank. OA reports that "the outstanding balance in the account must never exceed the equivalent of 1.5% of the federal government's expenses as arranged in the annual federal budget" (p. 226), except in extraordinary circumstances. Credit extended to the government is detailed in the Annual Report. The Law on the Bank of Mexico also sets forth restrictions regarding the BdM's purchase of government securities, requiring that all such purchases be covered by cash deposits or result from the BdM's bids in primary auctions and establishing limits on the total amount of such purchases. The central bank's law also establishes conditions regarding the BdM's involvement with the broader economy. For example, there are provisions covering equity ownership in the bank and prohibiting the BdM from acquiring real property "nonessential" to the bank's core functions. OA notes that the purchase, sale, or lease of movable property and the contracting of services, by law, "must be effected through public bidding" (p. 227). The BdM makes public the rules on procurement on its website, as well as details regarding the current fiscal year's procurement contracts. The BdM's nonprofit status is established by Article 55 of the Law on the Bank of Mexico. Its entire operating surplus must be transferred to the federal government, minus the amount required to meet reserve requirements as established in the law. The amounts of such transfers are accounted for in the BdM's annual balance sheet.

The 2004 Fitch Ratings report notes that the BdM's inflation targeting regime is credible, basing this assessment on the short- and medium-term targets set by the central bank and the practice of publicly disclosing its inflation forecast assessments. Fitch argues that transparency can be enhanced by publishing the minutes of meetings in which monetary policy is discussed. However, the report acknowledges that the BdM provides clear explanations of its monetary policy mechanisms, which include repo operations and direct purchases and sales of government securities in the secondary market. According to the IMF's 2001 Financial System Stability Assessment, the BdM was a "well-run institution with highly qualified management and staff" (p. 38), and was effective in carrying out its legally mandated tasks. The IMF noted at the time, however, that there were some institutional arrangements that could bear improvement. The report noted that the BdM had already made significant progress towards improving transparency.

Open process for formulating and reporting monetary policy decisions.

CP

The 2006 OA report accords Mexico a rating of "compliance in progress" (p. 228) for this principle. The Law on the Bank of Mexico establishes the BdM's monetary policy practice and the inflation-targeting framework that informs it. The BdM's website provides public access to the text of the law, along with a variety of documents -- the Inflation Report, the Annual Report, research articles, and the like -- that help explain monetary policy practice and objectives. Press briefings on policy and procedure are another form of outreach to the public. The BdM website, according to OA, offers a section titled "Implementation of Monetary Policy through the Zero-Average Reserve Requirement System," in which it explains the central bank's available policy instruments and their use. The website explains its traditional use of the corto mechanism -- described by OA as "the amount of money that BdM provided daily to the financial system at twice the equilibrium interbank interest rate" (p. 228) -- as its primary policy tool. According to OA, following the supply-side shocks of 2004, the BdM has fine-tuned its approach to formulating monetary policy and communicating about that policy to the public. The BdM uses the consumer price index (CPI) to measure inflation, but OA reports that some commentators have expressed a preference for targeting core inflation. The BdM disagrees, arguing that the CPI better reflects the cost of living and, further, "this framework allows the BdM to monitor all administered prices, detect any underlying price distortions they might produce, and discuss with the SHCP the potential impact on inflation of future changes in administered prices" (p. 228). OA adds that the publication of the BdM's medium-term inflation forecasts is under discussion. The Law on the Bank of Mexico and the Constitution together grant the BdM the right to employ a variety of monetary policy implements, including the corto. OA notes that the BdM has informally begun to move away from the use of the corto in favor of recommending a floor on the overnight interest rate as the primary policy tool, particularly during the disinflationary process that has been in place since 2004. The BdM has, however, formally retained the corto as a significant policy tool.

The BdM's five-member board of governors assesses the changing economic environment to assure that monetary objectives are achieved. The board's composition, structure, and function are determined by provisions of Article 38 of the Law on the Bank of Mexico. Articles 38 through 47 of the Law provide a clear statement of the procedures for appointing members to the board, the requirements of appointees, the terms to be served, the responsibilities and authority of the board, and the conditions by which a board member may be discharged. The governor serves a six-year term, while the other four members (deputy governors) serve eight-year, staggered terms. Reappointment is permitted. Per Article 40 of the Law, conflicts of interest and political interference with the board are minimized by the mandate that the governor's term starts four years into the term of the sitting administration, thus removing the appointment process from the election cycles of the executive and legislative branches. OA notes that "all board members are barred from participating as representatives of the central bank in the activities of political parties" (p. 229). The meeting schedule of the board of governors is publicly announced (every two weeks). OA adds that "the board meets daily to assess the behavior of domestic and foreign financial markets, and decides if a change in broad money supply is needed. Decisions over liquidity intervention are posted daily on the website" (p. 230).

Policy decisions are immediately released and explained both on the BdM website and in the press. They are also published in the Monetary Policy Bulletin and in the Annual Report. OA notes that such public disclosures have begun to include greater detail than in the past. The policy instruments to be used and the way that they will help achieve policy targets are explained in the January Monetary Policy Program document. OA suggests that transparency can be further enhanced by publishing the board meeting minutes and the voting records of board members. The BdM also publishes quarterly Inflation Reports and an annual Monetary Policy Implementation Report on its website. The trend has been to provide more information regarding the BdM's inflation forecasting. Most of the information released in the various available formats and periodicals is also compiled and presented in the BdM's Annual Report. In addition, the BdM website offers public access to a variety of financial and monetary indicators. Although there is no formal, legal framework for soliciting public input into monetary policy formulation, OA reports that BdM officials do consult with members of the executive and legislative branch, other government agencies, and representatives of the private sector.

Public availability of information on monetary policy.

FC

According to the 2006 OA report, Mexico achieves a rating of "full compliance" (p. 232) for this principle. In the words of the report, "the central bank is responsible for compiling and disseminating monetary, balance of payments, [and] consumer and producer price indices. It also disseminates information and macroeconomic statistics compiled by other statistics-producing agencies, such as the SHCP, the National Statistics Institute, and the National Banking and Securities Commission" (p. 232). As OA notes, there is the potential for conflict of interest inherent in the fact that the BdM uses a variable -- the CPI -- that it compiles itself in order to measure achievement of its policy objectives, it has had to institute certain methodological controls. OA states that the BdM's methodology for arriving at its CPI has been quality-certified at ISO-9002 as of December 2000, and in January 2003 it was certified at ISO-9001. In addition, the IMF's SDDS website discloses that all data categories that fall under BdM responsibility have met or exceeded requirements of periodicity, timeliness, and coverage. Both the BdM and SDDS websites provide public access to advance release calendars, and the SDDS website discloses that data is subject to simultaneous release to all interested parties.

The Internal Regulations of the Bank of Mexico requires that the General Annual Balance be published within five days of the document's acknowledged receipt from the independent external auditor. OA adds that the release of monthly consolidated balance statements is subject to a 20-working-day lag. The BdM also provides preliminary balance-sheet information each week. The Regulations also stipulate the data content of the balance sheet reports and monthly statements. It requires the year-end publication of the financial balance sheet and month-end consolidated statements of accounts. OA notes that both the balance sheets and the Annual Report include a description of accounting standards used along with disclosure of emergency lending and foreign exchange assets.

The Constitution prohibits the government from forcing the BdM to grant credit, but provisions in the Law on the Bank of Mexico expressly permits the central bank to act as the lender of last resort to credit institutions when conditions warrant it, albeit under well-defined conditions. Disclosure of such credit offerings are publicly disclosed to the extent that they can be without jeopardizing financial stability, according to OA. OA calls the BdM's public information services "comprehensive," noting that "these include periodic publications on statistical tables and time series data, statements on monetary policy, annual reports, research reports, speeches, and other presentations that are available in electronic format" (p. 233). It allows the public to address questions directly to one of the deputy governors through an email link on the BdM website. In addition, the BdM library provides access to a wide range of research papers and other documents that deal with economic issues in Mexico.

The 2004 Fitch Ratings report, summarized in an article by Business Wire, notes that the BdM releases monthly data on monetary and credit aggregates, providing a detailed breakdown of credit extended to both the public and private sectors as well as the "main monetary aggregates and their components, and the gross foreign assets and liabilities of the banking system." The BdM also issues a weekly press bulletin that discloses important changes in its balance sheet, and a monthly consolidated statement of accounts for the closing day of each month. Fitch adds that the BdM provides public access to a breakdown of its international reserves, following the IMF's Data Template on International Reserves and Foreign Currency Liquidity. Overall, Fitch finds that Mexico provides sufficiently comprehensive and timely monetary and financial data to enable an outside analyst to determine whether the BdM's monetary policy is consistent with its objectives.

The website of the IMF's SDDS discloses that Mexico is a subscriber to the SDDS and meets or exceeds all requirements of timeliness, periodicity, and coverage for its monetary data. The website also discloses that advance release calendars are publicly available, and that monetary data is subject to simultaneous release to all interested parties.

Accountability and assurances of integrity by the central bank.

CP

According to the 2006 OA report, Mexico is rated "compliance in progress" (p. 234) on this principle. Article 51 of the Law on the Bank of Mexico establishes the BdM's requirements to report to the executive and legislative branches. Under Article 52 of the Law, either chamber of Congress can require the BdM's governor report on the bank's activities. In addition, the governor must also answer congressional summonses to lend his expertise on topics of interest. OA notes that the law requires that the BdM disseminate its monthly and annual audited financial statements, and that this is done via the BdM website according to an advance-release schedule. Article 40 of the Law on the Bank of Mexico establishes the procedure by which external audits are organized. The SHCP solicits the nomination of three well-respected, independent accounting firms from a professional accounting association. The Secretary then consults with the Chamber of deputies Finance Accounting Vigilance Commission to select one of the nominees to serve as the BdM's external auditor. In addition to this, the BdM is subject to audits by the Federal Audit Office, which OA describes as "an autonomous auxiliary body to the Chamber of Deputies" (p. 234). OA notes that the accounting practices could be more thoroughly disclosed in order to facilitate the interpretation of the central bank's balance sheets. Outside audits are submitted to the President and to Congress covering the BdM's expenditures and its physical investment budget execution. Legislation requires that the Internal Comptroller is responsible for ensuring compliance with requirements of internal governance and audit activities. The official behavior of the BdM employees are governed by standards laid out in Article 61 of the Law on the Bank of Mexico. In addition, all the BdM personnel are subject to the Federal Civil Servants' Responsibility Act and other laws pertaining to the civil service and public information rights. Provisions include the requirement that personnel occupying certain positions of authority disclose their personal property and assets. In addition, the rules for dismissal of members of the board of governors are specified in the Law on the Bank of Mexico.